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The biggest coal-fired power plant west of the Mississippi is up for sale, but market
watchers say they’re not convinced anyone is serious about buying it.

That skepticism comes despite statements from the Salt River Project, which co-owns
the Navajo Generating Station in Page, Ariz., that they’ve signed 14 non-disclosure
agreements with potential buyers. Some analysts aren’t convinced the 14 are serious
bidders. Others, however, say President Donald Trump’s pro-coal policies could help
the plant get sold.Fourteen potential buyers “is an extraordinary number,” Tom Sanzillo, finance director
at the Institute for Energy Economics and Financial Analysis, told Bloomberg Environment.
“Fourteen and 15 buyers is what you get when a solar company goes bankrupt, because
there’s so much value there.”

That’s not true of coal because power prices from natural gas and renewables are so
low, said Jeremy Fisher, a principal associate with research firm Synapse Energy Economics
Inc.

“If you’re an investor thinking about picking up a plant on the cheap, you look at
your long-term prospects for being able to make money,” Fisher told Bloomberg Environment.
“Until we see something that fundamentally changes the market structures, I don’t
think we’re seeing much of a change.”

Then, too, there’s the question of how another owner could run the Navajo Generating
Station at a profit when SRP, an experienced operator, cannot, Amanda Ormond, managing
director of the Western Grid Group, which advocates for cost-effective low-carbon
technologies, told Bloomberg Environment.

The Navajo plant will operate through Dec. 23, 2019. After that date, the 50-year
lease held by SRP and four other partners that now co-own the plant, including the
Bureau of Reclamation and Arizona Public Service Co. will expire. Unless a new buyer
is found quickly, the plant then will be decommissioned.

Future of Coal-Fired Plants

Some analysts now see glimmers of life for coal-fired electricity, driven mostly by
Trump’s efforts to prop up the industry.

The White House proposed to repeal the Clean Power Plan and to subsidize coal plants
in certain competitive energy markets. The Trump administration also rolled back a
final rule that would limit where coal companies can dump mining waste and killed
a moratorium on federal coal leasing.

“If we were in the same environment a year, a year and a half ago, where international
coal prices were low, gas prices were well under $3, and you had an administration
that was very anti-coal, it would be very difficult to think there could be buyers,”
Jeremy Sussman, an analyst with Clarkson Capital Markets, told Bloomberg Environment.

“Today, however, even if there’s a coal-fired power plant that’s unprofitable and
its owners are looking to monetize it, I think there’d be a lot more seats at the
table,” Sussman said.

A Clean Slate

Different buyers also bring different cash positions to the table, said Sean Lane,
executive vice president of governmental affairs at investment and management firm
Olympus Power LLC. That fact could explain why a new buyer might feel confident in
its ability to run NGS profitably even as the current owners want to walk away from
it.

“There are differences in operators, in terms of the kinds of overhead they bring
to a transaction,” Lane told Bloomberg Environment. “If you came in with a clean slate,
you could avoid doing a lot of the things they do, and cut costs. But if you’re paying
an enormous debt service burden because of the preexisting structure, you might say
it’s not economic.”

Indeed, even prior to the Trump administration’s moves, some coal plants have changed
hands in recent years. In 2013, for example, Energy Capital Partners bought two coal-fired
plants, along with a natural gas plant, from Dominion Resources Inc. for $650 million.
Later the company flipped those plants, as part of a portfolio of 10 facilities sold
for $3.45 billion to Dynegy Inc.

Private equity firm The Blackstone Group L.P. also bought a coal plant for $126 million
from Optim Energy LLC, which had filed for bankruptcy protection, in 2014. More recently,
Atlas Holdings LLC and Castleton Commodities International LLC bought a pair of New
Hampshire coal-powered plants from Eversource Energy on Oct. 12. Both companies declined
to tell Bloomberg Environment why they were buying the plants.

No Change Yet?

Seth Schwartz, president of consultancy Energy Ventures Analysis, said that moves
such as Trump’s could inspire confidence among investors for coal. But he also said
he doesn’t see that happening yet.

“The market probably still views the new administration’s actions as preliminary,
or at least unsettled,” Schwartz told Bloomberg Environment. “They’re still subject
to litigation. So I’m not sure that investors are ready to act on those initiatives
right now. But some individual investors may take a contrarian position, thinking
their odds have improved.”

Scott Harelson, an SRP spokesman, told Bloomberg Environment that the 14 interested
parties are researching the plant and its economics, including its budgets, union
contracts, and maintenance. SRP has no sense of the parties’ level of interest, Harelson
said. The company did not say who the 14 parties were.

Similarly, Beth Sutton, a Peabody Energy spokeswoman, told Bloomberg Environment earlier
this month that “a number of private equity firms and power plant operators...have
expressed interest in moving to the next phase in the process,” but that those parties
are “understandably subject to confidentiality agreements.”

Peabody operates the Kayenta mine, 80 miles away. That mine provides coal only to
NGS, and there is no rail line connecting anywhere else.

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